To steal a point from Scott Sumner, nominal GDP growth in the United States follows a pretty clear trend. Here’s the past 20 years of nominal GDP compared to a trend of 5.5 percent nominal GDP growth:
As you can see, in 2008 we slipped below the trend. That’s bound to happen. When you have a trend, sometimes you go higher and sometimes you go lower. But in 2009, we’re not catching up with the trend. We’re falling further behind. Much further behind. And in 2010, instead of starting the process of catching up we’re scheduled to fall even further behind:
U.S. economists in the closely watched Blue Chip Economics Indicators group expect gross domestic product growth in 2010 to expand by 2.7 percent unchanged from last month’s projection. [...] The panelists forecast GDP to contract by 2.5 percent this year on a year-to-year basis [...] While the consensus foresees headline inflation increasing a bit, most analysts forecast a further decline in core inflation.
After a below-trend 2008 and a sharp contraction in 2009, policymakers should be looking for “catchup” growth in 2010 and 2011—nominal GDP growth that’s faster than the long-run trend. Instead for 2010 at least we’re looking at falling further behind, and elites are talking about the need to start withdrawing monetary and fiscal stimulus at a time when we need more.